The en banc Federal Circuit ruled on Friday in Beer v. U.S. that congressional denial of automatic and determinate cost-of-living-adjustments to the salaries of federal judges violated the Compensation Clause in Article III. The ruling sends the case back to the Court of Federal Claims and almost surely means that federal judges will receive retroactive COLAs, unless the case is overturned on appeal (to the Supreme Court). It means that Congress can't go back on automatic and definite COLA increases for judges--or any other future salary adjustments that are sufficiently determinate to set judges' expectations--even if it can go back on future year COLA increases if they are sufficiently squishy.

The case involved a 1989 congressional act that set an automatic and determinate formula--a "mechanical" formula, according to the court--for COLAs for federal judges. (Under the prior law, enacted in 1975, judges' COLAs were pegged to the President's report to Congress on General Schedule federal employee COLAs, which, in turn, was set based on annual reports by the Bureau of Labor Statistics and the Advisory Committee on Federal Pay. The 1975 law, then, set no definite formula for future COLAs; instead, COLAs could vary year-to-year based on the BLS and Advisory Committee reports and based on the President's report to Congress.) Despite the automatic formula in the 1989 act, Congress denied COLAs in 1995, 1996, 1997, and 1999. Judges sued, arguing that these denials violated the Compensation Clause.

The Compensation Clause says that federal judicial "Compensation . . . shall not be diminished during [judges'] Continuance in Office." But the framers deliberately declined to tie judicial salaries to commodities or other standards of measurement (to establish an early kind of COLA), and the Clause does not require periodic increases in judicial salaries to offset inflation or other economic factors. Indeed, the Supreme Court ruled in United States v. Will (1980) that congressional acts declining to extend COLAs under the 1975 law did not violate the Compensation Clause. (The Court in Will said that Congress could go back on future year COLAs, but not on current year COLAs, under the 1975 law, because "a salary increase 'vests' . . . only when it takes effect as part of the compensation due and payable to Article III judges"--in the current year.)

The difference here, said the court, is that the 1989 law, with its automatic and determinate formula, set judges' salary expectations, which then became part of their "Compensation" for Compensation Clause purposes. The court explained:

In essence, the statutes reviewed in Will required judicial divination to predict a COLA and prevented the creation of firm expectations that judges would in fact receive any inflation-compensating adjustment. In that context, as the Supreme Court noted, no adjustment vested until formally enacted and received. However, the statutes in Williams and in this case provide COLAs according to a mechanical, automatic process that creates expectation and reliance when read in light of the Compensation Clause. Indeed a prospective judicial nominee in 1989 might well have decided to forego a lucrative legal career, based, in part, on the promise that the new adjustment scheme would preserve the real value of judicial compensation.

Op. at 13.

Moreover, the automatic formula in the 1989 act was part of a legislative quid pro quo that included limits on judges' outside income, effectively limiting their income. Thus, "the statute ensured that real judicial salary would not be reduced in the fact of the elimination of outside income and the operation of inflation." Op. at 15.

In ruling that congressional denials of COLAs violated the Compensation Clause, the court overturned its own precedent, Williams v. United States, which held that denials of COLAs under the 1989 law did not violate the Compensation Clause.